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Business Time Sampling Scheme with Applications to Testing Semi-Martingale Hypothesis and Estimating Integrated Volatility

Author

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  • Yingjie Dong

    (Business School, University of International Business and Economics, 10 Huixin Dongjie, Beijing 100029, China)

  • Yiu-Kuen Tse

    (School of Economics, Singapore Management University, Singapore 178903, Singapore)

Abstract

We propose a new method to implement the Business Time Sampling (BTS) scheme for high-frequency financial data. We compute a time-transformation (TT) function using the intraday integrated volatility estimated by a jump-robust method. The BTS transactions are obtained using the inverse of the TT function. Using our sampled BTS transactions, we test the semi-martingale hypothesis of the stock log-price process and estimate the daily realized volatility. Our method improves the normality approximation of the standardized business-time return distribution. Our Monte Carlo results show that the integrated volatility estimates using our proposed sampling strategy provide smaller root mean-squared error.

Suggested Citation

  • Yingjie Dong & Yiu-Kuen Tse, 2017. "Business Time Sampling Scheme with Applications to Testing Semi-Martingale Hypothesis and Estimating Integrated Volatility," Econometrics, MDPI, vol. 5(4), pages 1-19, November.
    • Handle: RePEc:gam:jecnmx:v:5:y:2017:i:4:p:51-:d:118613
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    References listed on IDEAS

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    2. Dong, Yingjie & Huang, Wenxin & Tse, Yiu-Kuen, 2023. "Price comovement and market segmentation of Chinese A- and H-shares: Evidence from a panel latent-factor model," Journal of International Money and Finance, Elsevier, vol. 131(C).

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